It is no longer news that the Naira has depreciated in value in the recent weeks. This is the widest gap between the free market value and the Central bank of Nigeria’s rate in the history of the nation. Who exactly is to blame for the abysmal performance of the naira?

Many factors influence exchange rates. Differentials in inflation and interest rates, Public debt, terms of trading and Political stability are some of the exerting factors. High inflation and interest rates, large-scale deficit financing and decreasing terms of trade are all bound to make the Naira depreciate in value.

The recent depreciation in the value of the naira is largely linked to the fall in the price of crude. The price is largely determined by the forces of demand and supply. The demand for crude has declined globally. The United States of America have become the largest producers of crude oil hence cutting down on the need to import crude to supplement its domestic needs.

Since the US market shut its doors to Nigerian crude, the Asian market has been our best bet. That has been recently threatened by the Russians proposal to supply India, one of our major patronisers, with ten million tons of crude oil in the next ten years.

The coming back of the Iranians to the business will only drive oversupply. They have close to Forty million barrels of oil stored in offshore tanks which are for sale in 2016.The failure of OPEC to stabilise the market is largely seen as a major factor affecting oil prices. Saudi Arabia and its Gulf allies are not willing to cut down production to reduce supply. They are sceptical about losing their market share and indirectly benefitting their competitors. There is a perceived conspiracy theory with political undertone to it. A reduction in the supply of crude by Saudi Arabia to the world market and subsequent resumption of oil imports by the United States of America could see it benefit Russia and Iran which are their perceived ‘enemies’. The availability and increased investment in alternative sources of fuel cannot be ruled out. Increased shale oil production and a general shift to renewable energy lend credence to this. These factors have significantly resulted in the fall in oil prices witnessed recently. These are what we have no control over as a nation.

As a nation, our demand for the dollar is absurd. We import virtually everything (despite our vast natural resources) and export little. Since the price of exports has risen by a smaller rate than that of our imports, the Naira has decreased in relation to its trading partner’s currency. Heightened demand for the dollar has increased its price since our main source of foreign exchange (crude oil sales) is not yielding much as before.

The recent move by the Central bank of Nigeria to ban import of basic commodities are worthy of note. However, these are temporary measures which are already fighting back. The Federal Government as a matter of urgency need to be more proactive at this time of dwindling resources. The government has to be policy driven. Governance is a continuum and well-thought-after policies should transcend from one government to another. The administrative gap between the last administration and the current one left a detriment effect on the economy which resulted in the economic slowdown we are currently experiencing. The federal government cannot control oil prices nor influence its demand. However, her swift response in times of crisis can counter any negative effect envisaged.

The move to curb the ‘dollarization’ of the economy is not a bad one in its entirety. However, we should holistically look at the factors that necessitated the need to trade with foreign currencies in Nigeria in the first place. Recent moves to revamp the existing refineries and build modular refineries are good steps in the right direction. The ongoing reforms in the oil sector would definitely pay off in the long run as long as the tempo is sustained. It will always be cheaper to refine our own crude. Saudi Arabia refines their crude at a cost price of $5 to $6 dollars a barrel. Refining our own crude oil will also free Nigerians from the stronghold of oil marketers who hold us to ransom at the slightest opportunity. It is within our power as a nation to be a manufacturing based economy.

You cannot continue to import every raw material and remain competitive globally. Self-sustainable nations usually get it right when it comes to agriculture. Feeding ourselves alone will save us millions of dollars annually which we use to import items like rice. The private sector has a part to play but that is largely dependent on the government creating an enabling environment. Meeting the power and infrastructural needs of the private sector will significantly reduce the cost price of goods and services available to the Nigerian people.

With the current oil price below $40 a barrel and with the International Monetary Fund projections of $20 for 2016, it is imperative we diversify the economy to keep afloat. More money will be available for meaningful development and ultimately the standard of living of the average Nigerian will improve.

cc:MYND44,lalasticalala ,Seun

SOURCE: http://www.thewhistleng.com/who-is-to-blame-for-the-dwindling-fortunes-of-the-naira/

Well written, quite educating!


Practical case of the negative effect of the 'bathtub theory of economics'

we need the economics gurus at this point in this country cos truth be told i'm tired of hearing 'diversification', it's more like a political term...apart from agricultural products what else can we really export?

interesting

front page thins..

Even if you have $200bn in external reserves sooner or later it will all be gulped by the import based economy.

The only major earner of forex is the FG which they get mainly from oil.

The only solution is to have the populace controlling and dominating forex flows rather than the govt.


Some illiterates don't know that a huge chunk of our external reserves where eroded not by stealing but by selling to the domestic market.


Jump start our export base and liberalise forex rules and see more Nigerians earn and save in dollars locally.

The federal government cannot control oil prices...

have you been under the rocks?? Bubu once said he can. Abi you think he based his budget on $38 per barrel for laughing sake??
He's just still watching the market in his 5D rayban...

It is a well known subject

APCLyingBastard:
Even if you have $200bn in external reserves sooner or later it will all be gulped by the import based economy.

The only major earner of forex is the FG which they get mainly from oil.

The only solution is to have the populace controlling and dominating forex flows rather than the govt.


Some illiterates don't know that a huge chunk of our external reserves where eroded not by stealing but by selling to the domestic market.


Jump start our export base and liberalise forex rules and see more Nigerians earn and save in dollars locally.

Don't mind them.

Devaluation? Nice write up

If I was a part of Buhari's economic team I will concentrate on developing the downstream sector of the oil industry.

The potentials here are greater and more rewarding than exporting crude.

This is why:

1. Conserve forex lost to importation of refined resins and fuels.

2. This will create jobs and make the restive Niger Delta pacified through job creation

3. Lead to a viable petrochemical industry serving a multitude of local and export demand.

4. We will earn 20 times more than what we earn from crude if we export refined products. The price of engine oil never drops with the cost of crude slump.

Our fastest way to save money is to replace our most common imported food item with local substitute. If we replace rice with yam, then it is easier to speed up production of yam than rice. Even if we develop enough to produce local rice our prices will likely be unfavourable compared to foreign rice. I admonish this strategy for cassava, yam, potatoes, cocoa yam and potential substitute of rice in our daily meals.
We can extent same strategy to other sector on the short run or keep rolling out long term promise successive govt. admin will come derail.

Sibrah:
Our fastest way to save money is to replace our most common imported food item with local substitute. If we replace rice with yam, then it is easier to speed up production of yam than rice. Even if we develop enough to produce local rice our prices will likely be unfavourable compared to foreign rice. I admonish this strategy for cassava, yam, potatoes, cocoa yam and potential substitute of rice in our daily meals.
We can extent same strategy to other sector on the short run or keep rolling out long term promise successive govt. admin will come derail.

You need to quadruple your cassava and yam output in less than a year to achieve what you are postulating

.

baralatie:

You need to quadruple your cassava and yam output in less than a year to achieve what you are postulating

Which is easier, to quadruple cassava and yam production or fend off the foreign challenge from rice importer, smugglers, foreign farmers? How do we match the foreign rice in quality, price, and availability? Our shortest cut is to increase availability of all substitute goods produced locally.

Foolish wailers oya come say thank you to uncle OP for teaching you small wisdom.

Nice work op , we keep explaining to those mumu wailers that the economy is hostage to oil prices and hero of thieves did littke to help by eargerly facilitating the theft of billions of dollars and failure to diversify the economy and save money in times of high oil prices are greatly responsible for our current predicaments.

But Nigeria will overcome.

vedaxcool:
Foolish wailers oya come say thank you to uncle OP for teaching you small wisdom.

Nice work op , we keep explaining to those mumu wailers that the economy is hostage to oil prices and hero of thieves did littke to help by eargerly facilitating the theft of billions of dollars and failure to diversify the economy and save money in times of high oil prices are greatly responsible for our current predicaments.

But Nigeria will overcome.

Borrower advocate .

This is what Nigerians will be carrying to the market to buy garri

The era of oil is coming to an end . . . .other oil producing countries have caught on and are selling their crude oil fast and for whatever price.

Even America is prepared to offload her reserves for such a low amount! That should tell us something.

Alternative technologies are now here (electric / hybrid vehicles) so the demand for fuel is due to drop further.

And who knows how much of this shale gas is out there? Maybe Nigeria should start 'fracking the niger delta North' to keep up with the rest of the world.

APCLyingBastard:


Borrower advocate .

This is what Nigerians will be carrying to the market to buy garri

Except in Biafra my sweet Nigeria can never come to this by GOd's Grace. Say amen.

vedaxcool:


Except in Biafra my sweet Nigeria can never come to this by GOd's Grace. Say amen.

Dey there. You that don't have a clue outside of depending on oil from the ND just like that your useless lamenting governor aregberascal that can't keep his eyes of crude prices.

Go and farm cocoa because this gbesse economy will turn you to Somali level hunger

[img]http://2012patriot.files./2011/10/debt-slaves-payments.jpg[/img]

Sibrah:
Which is easier, to quadruple cassava and yam production or fend off the foreign challenge from rice importer, smugglers, foreign farmers? How do we match the foreign rice in quality, price, and availability? Our shortest cut is to increase availability of all substitute goods produced locally.

The later will be best achieved, remember that corruption is already a cancar worm that has eaten deep into our civil service. Banning of imported goods would be highly difficult and time consuming but not impossible.
The issue with the Agricultural sector is funding and neglect. Because of the form of Agricultural been practised majorly here (subsistence and manual labour) tons per hectare here has been brought to the barest minimum because of the way way farm, if mechanised agriculture is encourage, it will do do lot of positivity to our food crisis. If the government can provide tractors whether on loan, mortgaged or to be leased to farmers when needed, our food security would be a thing of the past. Farmers don't only need good tractors, we need fertilizers, extension workers and researchers who will be on hand to provide needed support for farmers at the end.

I went to a school of Agriculture and believe me 90% of us who studied their were not even ready to be farmers, they only needed the degree to show they went to higher institution. After completion, we were told we could access a loan of 250k, imagine no land, seed or technicality to be provided, 250k can only provide sustainable agriculture not changeable agriculture. Let me stop here but let's note, agriculture can provide hundreds of thousands of job if the govt wishes to tap into it.
1. For farmers
2. researchers
3. services (banks for loan, transporters of agric produce, marketers etc)
4. manufacturing and processing
5. foreign exchange earner (exporting of both raw and processed goods)
We have tons of crops so expect tons of people in thi field if agriculture booms again.

APCLyingBastard:


Dey there. You that don't have a clue outside of depending on oil from the ND just like that your useless lamenting governor aregberascal that can't keep his eyes of crude prices.

Go and farm cocoa because this gbesse economy will turn you to Somali level hunger

[img]http://2012patriot.files./2011/10/debt-slaves-payments.jpg[/img]

Whatever you wish on Nigeria may it befall you a million times over.

Samoalfred:
It is no longer news that the Naira has depreciated in value in the recent weeks. This is the widest gap between the free market value and the Central bank of Nigeria’s rate in the history of the nation. Who exactly is to blame for the abysmal performance of the naira?

Many factors influence exchange rates. Differentials in inflation and interest rates, Public debt, terms of trading and Political stability are some of the exerting factors. High inflation and interest rates, large-scale deficit financing and decreasing terms of trade are all bound to make the Naira depreciate in value.

The recent depreciation in the value of the naira is largely linked to the fall in the price of crude. The price is largely determined by the forces of demand and supply. The demand for crude has declined globally. The United States of America have become the largest producers of crude oil hence cutting down on the need to import crude to supplement its domestic needs.

Since the US market shut its doors to Nigerian crude, the Asian market has been our best bet. That has been recently threatened by the Russians proposal to supply India, one of our major patronisers, with ten million tons of crude oil in the next ten years.

The coming back of the Iranians to the business will only drive oversupply. They have close to Forty million barrels of oil stored in offshore tanks which are for sale in 2016.The failure of OPEC to stabilise the market is largely seen as a major factor affecting oil prices. Saudi Arabia and its Gulf allies are not willing to cut down production to reduce supply. They are sceptical about losing their market share and indirectly benefitting their competitors. There is a perceived conspiracy theory with political undertone to it. A reduction in the supply of crude by Saudi Arabia to the world market and subsequent resumption of oil imports by the United States of America could see it benefit Russia and Iran which are their perceived ‘enemies’. The availability and increased investment in alternative sources of fuel cannot be ruled out. Increased shale oil production and a general shift to renewable energy lend credence to this. These factors have significantly resulted in the fall in oil prices witnessed recently. These are what we have no control over as a nation.

As a nation, our demand for the dollar is absurd. We import virtually everything (despite our vast natural resources) and export little. Since the price of exports has risen by a smaller rate than that of our imports, the Naira has decreased in relation to its trading partner’s currency. Heightened demand for the dollar has increased its price since our main source of foreign exchange (crude oil sales) is not yielding much as before.

The recent move by the Central bank of Nigeria to ban import of basic commodities are worthy of note. However, these are temporary measures which are already fighting back. The Federal Government as a matter of urgency need to be more proactive at this time of dwindling resources. The government has to be policy driven. Governance is a continuum and well-thought-after policies should transcend from one government to another. The administrative gap between the last administration and the current one left a detriment effect on the economy which resulted in the economic slowdown we are currently experiencing. The federal government cannot control oil prices nor influence its demand. However, her swift response in times of crisis can counter any negative effect envisaged.

The move to curb the ‘dollarization’ of the economy is not a bad one in its entirety. However, we should holistically look at the factors that necessitated the need to trade with foreign currencies in Nigeria in the first place. Recent moves to revamp the existing refineries and build modular refineries are good steps in the right direction. The ongoing reforms in the oil sector would definitely pay off in the long run as long as the tempo is sustained. It will always be cheaper to refine our own crude. Saudi Arabia refines their crude at a cost price of $5 to $6 dollars a barrel. Refining our own crude oil will also free Nigerians from the stronghold of oil marketers who hold us to ransom at the slightest opportunity. It is within our power as a nation to be a manufacturing based economy.

You cannot continue to import every raw material and remain competitive globally. Self-sustainable nations usually get it right when it comes to agriculture. Feeding ourselves alone will save us millions of dollars annually which we use to import items like rice. The private sector has a part to play but that is largely dependent on the government creating an enabling environment. Meeting the power and infrastructural needs of the private sector will significantly reduce the cost price of goods and services available to the Nigerian people.

With the current oil price below $40 a barrel and with the International Monetary Fund projections of $20 for 2016, it is imperative we diversify the economy to keep afloat. More money will be available for meaningful development and ultimately the standard of living of the average Nigerian will improve.

cc:OAM4J, MYND44

SOURCE: http://www.thewhistleng.com/who-is-to-blame-for-the-dwindling-fortunes-of-the-naira/

^^

nerdymufasa:
Well written, quite educating!


Practical case of the negative effect of the 'bathtub theory of economics'

we need the economics gurus at this point in this country cos truth be told i'm tired of hearing 'diversification', it's more like a political term...apart from agricultural products what else can we really export?

Agricultural products remains our best export option for now. We can't export what we don't have. We even need to address our agricultural needs before we can think of exporting.Nigeria is blessed with over 70% of her land been arable.If we take adequate steps to diversify our economy,we will have more options in the nearest future just like China and Singapore. We all are sick of hearing about diversification. More like sounding like a broken record.I hope we get it right soon.

Samoalfred:
Agricultural products remains our best export option for now. We can't export what we don't have. We even need to address our agricultural needs before we can think of exporting.Nigeria is blessed with over 70% of her land been arable.If we take adequate steps to diversify our economy,we will have more options in the nearest future just like China and Singapore. We all are sick of hearing about diversification. More like sounding like a broken record.I hope we get it right soon.

We couldn't compete with countries that have embraced mechanization . . . . . until we do it will be cheaper to import from more technically advanced countries + the quality of imported products is higher.

NwaNimo1:


We couldn't compete with countries that have embraced mechanization . . . . . until we do it will be cheaper to import from more technically advanced countries + the quality of imported products is higher.

You are right. The crux of the matter at the moment is self sustainability.If we take steps to improve the agricultural sector and feed ourselves,that will go a long way.The amount of money spent on food importation is way too much.

vedaxcool:
Foolish wailers oya come say thank you to uncle OP for teaching you small wisdom.

Nice work op , we keep explaining to those mumu wailers that the economy is hostage to oil prices and hero of thieves did littke to help by eargerly facilitating the theft of billions of dollars and failure to diversify the economy and save money in times of high oil prices are greatly responsible for our current predicaments.

But Nigeria will overcome.

Is GEJ responsible for d scarcity of PMS in April, 2016?
>> Are u aware that buhari led govt has swallowed d humble pie by wanting independent importers to import 60% of refined oil after NNPC failed to provide sufficient PMS for d whole nation.
>>Is GEJ also d reason y oil is not being sold at govt regulated price?
I AWAIT UR RESPONSE

Good job OP